Andrew Klavan

Was trolling one of my other blogs the other day, and found this. If you like his style, he does these every week or so. He writes books too.



Thought y'all might appreciate this sort of thing.

My Faith in Capitalism

I was always naive with interest (interest in banks dummy, not like in "vested interest"). You see, for the longest time, I thought it was calculated monthly. Silly torwch you say, it is calculated monthly. No, I thought that if you had a rate of 2% and a balance of $1000, you would get $20 the first month, $20.40 the next month, etc. I quickly went off, did some clever things with Excel and got a figure: if I put $1000 in one of those TFSA (tax-free savings accounts for the non-financial savvy) at BMO which has a rate of 2.4%, in 25 years I would have a MILLION BUCKS!!! And in 42 years I would be a billionaire.

WRONG!!!

Interest is calculated per month by dividing the rate (2%) by 12, and adding that to the balance. Thus, with 2.4% per year (0.2% a month) I would only have $3000 after 50 years.

This proof that free money is not floating around shook me to the core. More so than even during the recession, I doubted the power of capitalism.

However, I then learned that some stocks yield gains as high as 300%, and my faith was returned.

Praise the almighty invisible hand!